Analysts from DBS Group Research and Maybank have maintained their “buy” calls on Aztech Global, but lowered their target prices from $1.54 and $1.26 respectively to $1.48 and $1.13.
Both DBS’ Ling Lee Keng and Maybank’s Lai Gene Lih have noted Aztech’s “remarkable” results for FY2021, as well as an expanding orderbook.
Ling writes in a Feb 23 report that “amidst a tough operating environment posed by the global logistical and component challenges, Aztech reported a remarkable set of results with a 33.5% y-o-y jump in net profit.”
Aztech reported revenue for FY2021 ended December 2021 at $624.4 million, a 28.9% jump compared to FY2020, while net profit stood at $74.4 million, 33.5% up from the same period last year.
Ling also noted that its net profit margin remains strong at 11.9%, and she continues to project an “above industry average” net margin of 11.5% for FY2022 and 11.6% for FY2023.
This will be driven by the strong growth in the internet of things (IoT) market and the group’s continuing efforts to improve productivity and efficiency, leading to a robust earnings growth of 28% and 20% in FY2022 and FY2023 respectively.
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Meanwhile, Maybank’s Lai highlights that Aztech’s order book for FY2022 delivery rose from $426 million in Oct 2021 to the latest figure of $762 million.
However, he does add that the order book of $762 million is 9% shy of his previous FY2022 revenue estimates.
“If not for chip shortages, we would be comfortable that amid a strong demand backdrop, our previous FY2022 revenue [estimate] of $841 million is achievable,” he writes.
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This is because he thinks it is likely that Aztech will continue to win new orders as the year progresses.
However, Lai says that as certain components remain tight, he believe earnings risks persists for Aztech, although management notes that the situation with chip shortages has improved slightly since last year.
Ling also echoes the same sentiment, saying that these orders are expected to be completed in FY2022, barring any further disruptions to the already tight supply chain.
On the other hand, she does note that “though the situation has improved from last year, the group still faces component shortages and logistics challenges due to factors like port congestion and shortage of workers.”
However, she does expect the group to secure more orders for fulfilment in FY2022, “as we are still in the early part of the year.”
Both analysts are somewhat optimistic on the stock, with Ling optimistic that the group can continue to ride on the fast-expanding IoT market and to generate above industry net margin of above 10%.
Lai highlights that a longer-term risk for Aztech that he is concerned with is the commoditisation-driven margin erosion with customer A’s IoT products.
But if chip shortages dissipate materially and the demand outlook remains strong, he sees room for upward revisions in his estimates, adding this could also be a material catalyst for the stock.
Shares of Aztech Global closed at 93 cents on Feb 24, with a FY2022 P/B of 2x and dividend yield of 4%, according to DBS.
